High interest rates rattle manufacturers

•Companies reduce bank loans by 24.9%

•As finance cost drop 65.8% to N255.8 bn

•Profit rebounds  

•Manufacturers are adopting alternatives to bank loans – Analysts

By Peter Egwuatu  

There are indications that manufacturing companies are now finding alternatives to bank loans as the high interest rate regime in the economy scares them away.

Financial Vanguard findings from 13 big consumer goods manufacturing companies operating in Nigeria show that their borrowings from banks dropped by 24.9% in the first half 2025, H1’25, to N1.355 trillion from N1.805 trillion in the same period in 2024, HI’24.

In a bid to curtail the persistent rise in the inflation rate the CBN began implementation of an inflation targeting policy which required monetary tightening through a steady upward review of its benchmark interest rate, the Monetary Policy Rate, MPR.

All lending rates in the banks are determined at MPR plus cost of funds, meaning that effective lending rates hover around 30 percent and above.

The MPR has seen an upward rise for about 13 times since 2023 moving from 11.5 percent to 27.5 percent currently.

Companies now avoiding bank loans

Meanwhile, Financial Vanguard findings indicate that companies, in the bid to avoid the high cost of funds in bank loans as well as improve their earnings, are going for alternative source of funding including equity market, private placement and commercial papers.

The financial statements of the 13 big companies examined by Financial Vanguard show a combined total borrowings of N1.355 trillion in H1 ’25, declining from N1.805 trillion in HI’24.

As a result of their reduced borrowing their combined finance cost also dropped by 65.8% to N255.8 billion in H1′ 25 from N748.650 billion in H1’24.

The companies are Nestle Nigeria, recording a borrowing of N5.662 billion in H1’25 against N73.849 billion in H1’24, Cadbury Nigeria N32.210 billion against N37.389 billion; Unilever Nigeria N2.748 billion against N2.830 billion; Nigerian Breweries N152.025 billion against N608.240 billion; BUA Foods N319.356 billion against N364.480 billion;  Dangote Sugar N735.208 billion against  N638.933 billion; Nascon Allied industries N5.469 billion against N4.243 billion. International Breweries did not borrow during the year under review. 

Other companies are Guinness Nigeria N58.702 million against N40.132 billion; Northern Nigeria Flour Mills N19.153 billion against N7.210 billion; Champion Breweries did not borrow, while Honeywell Flour Mills recorded N25.330 billion against N26.965 billion in H1’24. MCNICHOLS Consolidated posted N3 million against N41 million in H1’24.

The companies are Nestle Nigeria, recording a borrowing of N5.662 billion in H1’25 against N73.849 billion in H1’24, Cadbury Nigeria N32.210 billion against N37.389 billion; Unilever Nigeria N2.748 billion against N2.830 billion; Nigerian Breweries N152.025 billion against N608.240 billion; BUA Foods N319.356 billion against N364.480 billion;  Dangote Sugar N735.208 billion against  N638.933 billion; Nascon Allied industries N5.469 billion against N4.243 billion. International Breweries did not borrow during the year under review. 

Other companies are Guinness Nigeria N58.702 million against N40.132 billion; Northern Nigeria Flour Mills N19.153 billion against N7.210 billion; Champion Breweries did not borrow, while Honeywell Flour Mills recorded N25.330 billion against N26.965 billion in H1’24. MCNICHOLS Consolidated posted N3 million against N41 million in H1’24.

Finance cost H1’25 and H1’24

Following the change in their funding sources the companies recorded a significant decline in their funding costs.

Nestle’s finance cost stood at N43.168 billion in H1’25 down from N318.122 billion in H1’24; Cadbury Nigeria N1.737 billion against N5.391 billion; 

Unilever N311 million against N207 million; Nigerian Breweries N27.824 billion against N42.538 billion; BUA Food N10.244 billion against N19.608 billion; Dangote Sugar N64.968 billion against N234.186 billion;  NASCON N413 million against N626 million. International Breweries N1.940 billion against N5.472 billion ; MCNICHOLS N2 million against N4 million. 

Others are Guinness N103.676 billion in H1’25 from N120.851billion in H1’24: Northern Nigeria Flour Mills N1millon from N13 million; Champion Breweries N544 million from N14 million: and Honeywell Flour N1.068 billion from N1.628 billion in H1’24.

Profit Before Tax

Other performance metrics showed that the reduction in borrowing costs was a critical driver of profitability. In H1’24, high interest rates, coupled with FX revaluation losses, eroded earnings. In contrast, H1’25 reflects a more disciplined balance sheet strategy, freeing up resources to support operational performance.

Perhaps the most significant achievement was the turnaround in profitability as the combined  firms Profit Before Tax, PBT stood at N622.541 billion from a loss position of -N669.935 billion in H1’24.

Revenue growth

The improved profitability came at the backdrop of strong consumer demand despite headwinds as turnover surged to N3.799 trillion in H1’25 as against N2.613 trillion in H1’24,  representing a robust 45.3% growth.

This revenue growth was also recorded against the backdrop of high inflation, rising energy costs, and continued pressure on consumer purchasing power.

Experts/ analysts comment

Commenting on the performance of the Consumer Goods sector, David Adonri, analyst and executive vice chairman at High Cap Securities Limited, said: “Following the sudden floatation of the Naira in 2023, many companies in the Consumer Goods sector suffered heavy FX losses due to their import dependency. That spurred them to refinancing their short term debt obligations with long term equity capital. That reduced their short term debt service ratio. 

“The savings in interest payment and availability of patient capital together with inflation enabled the Consumer Goods companies to boost their revenues.

However, the rising cost of production and administrative cost constricted their bottom lines”.

On the projection for third quarter, Q’3 their fundamentals are expected to get stronger in Q3 and Q4 2025 based on moderating inflation and exchange rate stability”.

Commenting as well, former President, Chartered Institute of Stockbrokers, CIS,  Olatunde Amolegbe, said: “The Consumer Goods sector recorded a 45% revenue surge in H2’25, supported by price adjustments, exports, and product diversification, while cost of sales rose moderately by 19.3%. Borrowings and finance costs fell sharply (-24.5% and -65.8%), reflecting better cash flow management, deleveraging, and a more favorable interest rate environment.

“Persistent inflation continues to pressure household incomes, limiting volume growth potential.

Foreign exchange volatility could further inflate input costs, especially for companies reliant on imported raw materials.

The strong topline growth, with profit rebounded show resilience 

In his projection, he said: “Going into Q3 and full-year 2025, revenue momentum is likely to remain strong, but margins could stay under pressure. Outperformers will be firms that hedge FX risks, deepen local sourcing, and optimize costs”.

Speaking on the performance of companies in the Consumer Goods sector, Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, said: “These companies may have opted for other sources of funding because it does not make sense to be taking fresh facilities at interest rates of above 30 percent”.

He remarked that: “The Consumer Goods sector, which manufactures goods for consumption, is struggling at this time and it has been like that for the past few years. The challenges facing the sector are enormous and, unfortunately, those challenges have not abated. There is the challenge of the foreign exchange (FX) issue, though now stabilising but still high. Many of our manufacturers are highly import dependent. So they are very vulnerable to this weak currency or high exchange rate.

“There is the challenge of the energy costs, the challenge of the cost of logistics, the challenge of clearing cargoes at the ports, particularly their raw materials, and there is the challenge of the weak purchasing power of the citizens. So, the combination of all these factors affect companies, but due to the nature of demands for their products they were able to make profit and recover from losses recorded the previous year.

”The high cost of capital from banks may be responsible for the decline in the companies’ demand for lower credit. And in any case, with interest rates at over 30 percent, I don’t think it makes sense for any manufacturer to be taking fresh facilities at that cost. It makes more sense for them to seek other sources of funding”.

Revenue growthThe improved profitability came at the backdrop of strong consumer demand despite headwinds as turnover surged to N3.799 trillion in H1’25 as against N2.613 trillion in H1’24, representing a robust 45.3% growth.This revenue growth was also recorded against the backdrop of high inflation, rising energy costs, and continued pressure on consumer purchasing power. Experts/ analysts commentCommenting on the performance of the Consumer Goods sector, David Adonri, analyst and executive vice chairman at High Cap Securities Limited, said: “Following the sudden floatation of the Naira in 2023, many companies in the Consumer Goods sector suffered heavy FX losses due to their import dependency. That spurred them to refinancing their short term debt obligations with long term equity capital. That reduced their short term debt service ratio. “The savings in interest payment and availability of patient capital together with inflation enabled the Consumer Goods companies to boost their revenues.However, the rising cost of production and administrative cost constricted their bottom lines”.On the projection for third quarter, Q’3 their fundamentals are expected to get stronger in Q3 and Q4 2025 based on moderating inflation and exchange rate stability”.Commenting as well, former President, Chartered Institute of Stockbrokers, CIS, Olatunde Amolegbe, said: “The Consumer Goods sector recorded a 45% revenue surge in H2’25, supported by price adjustments, exports, and product diversification, while cost of sales rose moderately by 19.3%. Borrowings and finance costs fell sharply (-24.5% and -65.8%), reflecting better cash flow management, deleveraging, and a more favorable interest rate environment.”Persistent inflation continues to pressure household incomes, limiting volume growth potential.Foreign exchange volatility could further inflate input costs, especially for companies reliant on imported raw materials.The strong topline growth, with profit rebounded show resilience In his projection, he said: “Going into Q3 and full-year 2025, revenue momentum is likely to remain strong, but margins could stay under pressure. Outperformers will be firms that hedge FX risks, deepen local sourcing, and optimize costs”.Speaking on the performance of companies in the Consumer Goods sector, Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, said: “These companies may have opted for other sources of funding because it does not make sense to be taking fresh facilities at interest rates of above 30 percent”.He remarked that: “The Consumer Goods sector, which manufactures goods for consumption, is struggling at this time and it has been like that for the past few years. The challenges facing the sector are enormous and, unfortunately, those challenges have not abated. There is the challenge of the foreign exchange (FX) issue, though now stabilising but still high. Many of our manufacturers are highly import dependent. So they are very vulnerable to this weak currency or high exchange rate.”There is the challenge of the energy costs, the challenge of the cost of logistics, the challenge of clearing cargoes at the ports, particularly their raw materials, and there is the challenge of the weak purchasing power of the citizens. So, the combination of all these factors affect companies, but due to the nature of demands for their products they were able to make profit and recover from losses recorded the previous year.”The high cost of capital from banks may be responsible for the decline in the companies’ demand for lower credit. And in any case, with interest rates at over 30 percent, I don’t think it makes sense for any manufacturer to be taking fresh facilities at that cost. It makes more sense for them to seek other sources of funding”.Also commenting, Ambrose Omordion, analyst and Chief Operating Officer at InvestData Consulting Limited, said: “Borrowings reduced significantly, suggesting deleveraging or repayment of loans. This likely eased financial strain, although it may also reflect limited access to fresh credit due to high interest rates”.On the general performance of the sector, he said: “The sharp improvement recorded by the firms indicates better cost absorption and stronger pricing power, signaling that the sector not only grew revenues but did so more efficiently”.On the outlook for Q3, Q4, he said: “If current trends of performance hold, Consumer Goods companies are set to play a leading role in stabilising corporate Nigeria’s earnings outlook in 2025, while continuing to meet the essential needs of millions of households.

Also commenting, Ambrose Omordion, analyst and Chief Operating Officer at InvestData Consulting Limited, said: “Borrowings reduced significantly, suggesting deleveraging or repayment of loans. This likely eased financial strain, although it may also reflect limited access to fresh credit due to high interest rates”.

On the general performance of the sector, he said: “The sharp improvement recorded by the firms indicates better cost absorption and stronger pricing power, signaling that the sector not only grew revenues but did so more efficiently”.

On the outlook for Q3, Q4, he said: “If current trends of performance hold, Consumer Goods companies are set to play a leading role in stabilising corporate Nigeria’s earnings outlook in 2025, while continuing to meet the essential needs of millions of households

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